Africa losing out on billions in diaspora cash: ReportBy LEE MWITI | Thursday, March 31 2011 at 19:04
A lack of innovation means that African governments are significantly losing out on the benefits of the billions of dollars that the diaspora sends back every year, a new report shows
Remittances to the continent grew four-fold between 1990 and 2010 to reach $40 billion last year, but only a small portion of that has ended up aiding the continent’s development, the study by the World Bank and the African Development Bank (AfDB) says.
The report found evidence that this money was invested in education, health and housing, reducing poverty in the destination countries.
But because governments have failed to strengthen ties with the diaspora (only 21 of Africa's 54 governments allow dual citizenship) and protect migrants while making remittances cheaper, there has been a big disconnect between what is received and how it is used to benefit the continent.
One way of tapping this cash would be through governments or private firms issuing diaspora bonds to the estimated 30 million nationals (about three per cent of Africans) living outside their home countries, the Leveraging Migration for Africa: Remittances, Skills, and Investmentsreport suggests.
“African banks can improve their access to international capital markets by issuing bonds that are securitised by future remittance inflows,” said Mr Mthuli Ncube, the chief economist of the AfDB.
Donors could play a big part in this by stepping in and helping secure remittances while mitigating risks to African countries, added the report.
Remittances account for the second largest source of funds for Africa after Foreign Direct Investment. But with such sources proving unreliable, governments may have to look elsewhere.
Countries with large diaspora populations in Africa, whose remittances could be harnessed for big-ticket projects such as railways and roads, include Ethiopia, Ghana, Kenya, Nigeria and Senegal.
The report found that for many African countries, remittances formed a significant fraction of their new investment, with many new houses, businesses and acquisition of land derived from the diaspora cash.
For example, 57 per cent of total investment in Nigeria and 55 per cent in Kenya was funded through money sent back by those living outside the home countries.
But the report also points out that official remittance flows are significantly understated, with only half of sub-Saharan Africa countries keeping reliable tabs. A whopping 30 countries reported zero remittances.
This is supported by findings by the World Bank carried out in, among other countries, Kenya, Uganda and Ethiopia under its Future of African Remittances (FAR) initiative launched last year in May.
It is also very expensive to remit money, within Africa. In some areas of the region, the cost of sending back money often tops 10 per cent. According to Mr Dilip Ratha, the report’s chief author, this leads to the use of informal channels—such as the Hawala system, popular in countries such as Somalia.
The study suggests that post offices, Saccos, rural banks, microfinance institutions, and even telecos could be tapped to reduce this expense.
Brain drain is also a challenge to most low-income African countries, as its skilled population sought better opportunities and pay elsewhere, according to the researchers.
“Migration of skilled labour is particularly high in small and low-income African countries, which already have low levels of human capital. Fragile and post-war countries face even bigger challenges because of the flight of human capital,” said Mr Shantayan Devarajan, the World Bank’s chief economist for the Africa Region.
According to data adduced in the report, two in every three African migrants, especially the poorer ones, go to countries within the region. Ninety per cent of North African migrants are, however, residing outside the continent. The top destinations by preference are France, Cote d’Ivoire (before the current crisis), South Africa, Saudi Arabia, the US and the UK.
The World Bank estimates that remittances to developing countries, which propped them up during the global recession, reached $325 billion at the end of 2010.
The report says that the rise in the labour force in poor regions and the decline in the better-off economies will continue to create imbalances which if not addressed will have long-term negative consequences.
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